On The Ground In Nigeria
My colleagues and I have just returned from a research trip to Nigeria with some interesting insights. Generally, business is booming, with a host of banks, private equity funds and corporates reporting strong economic activity. The difficult-to-measure informal sector also seemed to be flourishing, with general commerce looking robust. (Image: Downtown Lagos)
Incidentally, opinion seemed unanimous that the new state governor in Lagos – Babatunde Fashola – has performed extremely well, having ushered in marked improvements in traffic congestion, among other things. Here are a few key thoughts.
Banking Sector: Generally, the banking sector is going through a difficult time in the aftermath of the sweeping reforms of 2009. Risk appetite is low and uncertainty is high. Indeed, the majority of banks are putting money into local bonds in spite of the negative real return. The local five-year government bond, for example, is currently yielding 4.3% while inflation remains in the double digits (12.3% y-o-y in February). Private sector lending remains in the doldrums. There is some activity taking place, but lending is limited, focused towards large corporates which are trusted by the banks.
Of course, the proposed Asset Management Corporation (AMC) will also play a crucial role in the banking sector recovery. It is intended that the AMC will take bad debts off the balance sheets of the banks, paving the way for private sector lending to pick up. Yet, I caution that this process is likely to be both protracted and uneven. It is generally thought that CBN governor Lamido Sanusi needs to engage more with the banks in order to get the AMC bill passed.
Politics: Clearly, it is an uncertain time, with President Umaru Yar’Adua having been severely incapacitated for many months, and Vice-President Goodluck Jonathan holding the questionable status of ‘acting president’. The cabinet is becoming increasingly anxious, meaning that the impeachment of Yar’Adua is a distinct possibility. While things remain in limbo, policy has stalled, with the budget not yet signed.
Yet, many seem content with the current situation. Importantly, the peace in the Niger Delta is largely holding firm, since many of the people from that region see Jonathan as ‘one of their own’ and they do not want him to lose face. The stability in the region is allowing oil revenues to flow into local government coffers, hence it is in many politicians’ interest to maintain the status quo – especially as elections are approaching. Indeed, many people seemed sceptical that the polls would be brought forward from April 2011. Certainly, Jonathan seems to be settling into his position of acting president, having dismissed the national security advisor – a move seen as a political calculation since Abdullahi Sarki Mukhtar was a major power broker under Yar’Adua. Furthermore, there was consensus that Jonathan moved swiftly to tackle the violent unrest in Jos.